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Allerca must stop franchises in state

Business ordered to register before it sells designer cats

By Penni CrabtreeUNION-TRIBUNE STAFF WRITER

November 4, 2006

The state Department of Corporations this week ordered pet company Allerca and its founder, Simon Brodie, to stop offering or selling cat franchises in California.

The privately held San Diego company recently began promoting franchises to sell two “designer” cats that it claims to have created: a hypoallergenic cat bred not to produce allergy-causing proteins and a new tigerlike breed dubbed the Ashera.

Neither cat – priced at $3,950 and $6,000, respectively – is commercially available. But on its Web site and in e-mails, Allerca has been promoting “territories” at $45,000 each to potential franchisees in California and other states.

Allerca said in recent e-mails to prospective franchisees that interest in its franchise business is so high – spurred in part by recent national coverage of its hypoallergenic cat by NBC, CBS and The New York Times – that it has already filled its franchise quota for the sneeze-free cats.

On Thursday, the Department of Corporations ordered Allerca and Brodie to “desist and refrain” from the further offer or sale of Allerca franchises “for the protection of investors” until the cat franchise business is registered, or declared exempt.

Susie Wong, a spokeswoman for the department, said Allerca has not registered its franchise with the state or filed financial disclosure documents, as required by California franchise law.

Allerca, which lists its address at The Grande condo complex in downtown San Diego, was served with the order yesterday, Wong said. The company has 60 days to request a hearing on the order.

Days after The San Diego Union-Tribune reported Oct. 25 that Allerca may not be promoting its franchises legally in California, the company removed all reference to its franchise program from its Web site.

Allerca spokeswoman Julie Chytrowsky said yesterday that “Allerca has not sold franchises to anyone in any state and the company's franchise attorneys are working to effect compliance with all requirements.”

E-mails from Allerca to prospective franchisees in California and other states indicate the marketing process is far along, however. The company said that its hypoallergenic cat franchise is closed “due to high demand,” but that it is accepting provisional applications for its Ashera franchise.

Allerca, which requires “provisionally approved” franchisees to pay a deposit equal to 50 percent of the franchise cost, also said in an October e-mail that its “orientation” this month for prospective franchisees is full.

Franchise business experts and cat breeders have expressed skepticism about the financial viability of a cat franchise, saying the market for expensive cats is unlikely to support a franchise model.

Last week, Brodie acknowledged that he had a criminal conviction in England stemming from a failed franchise venture there. Brodie pleaded guilty to seven counts of false accounting and was sentenced to 2½ years in jail for his role in the 1992 demise of Cloudhoppers, a hot-air balloon-flight business in East Sussex.

Brodie's company planned to sell dozens of flight franchises at 200,000 pounds each across Britain. Instead, Brodie ran up hundreds of thousands of pounds in debts, and charged consumers for flights that the company never provided, according to British press accounts at the time.

The firm was continuing to take bookings for expensive flights even after the British Civil Aviation Authority revoked its license to fly, according to British press accounts.

Last week, Brodie said British press accounts about Cloudhoppers and his conviction “contain a number of inaccuracies,” but he acknowledged that he served “a sentence of under one year through a work-release program.”

In the United States, Brodie is promoting Allerca, a company he founded in 2004. In addition to promoting franchises, Allerca is also charging consumers a minimum of $3,950 to “prepurchase” its hypoallergenic cats, which the company says can take up to two years to deliver.

Brodie said last week that he was not obligated to disclose his criminal record to potential Allerca franchisees or Allerca pet buyers. Brodie no longer has an ownership interest in Allerca but serves as a consultant, Chytrowsky said.

Neither Brodie nor Allerca would identify any Allerca investor or stakeholder, or provide the names of scientists or breeding facilities involved in creating Allerca's cats.

California franchise laws provide some of the strongest protections in the nation for potential franchisees. Among other things, Allerca would be required to provide financial statements, prepared by an independent auditor, to prospective franchisees, Wong said.

Also, the Department of Corporations can order the escrow or impound of franchisee fees and other funds paid by a franchisee if the franchisor hasn't demonstrated adequate financial means to fulfill its obligations, according to state law.

In addition to his criminal conviction in England, Brodie has a problematic entrepreneurial record in the United States. He has promoted businesses as wide-ranging as computer processing and a Wi-Fi network, but has left behind debts, liens, court judgments and unpaid employees with some of his ventures.

In January, Brodie and Allerca were sued in Orange County for defaulting on a $25,000 loan. In February, Allerca was evicted from its previous downtown headquarters, which was also Brodie's residence, for failure to pay rent. Last year, Brodie's Los Angeles landlords won a $3,900 judgment against him for failure to pay rent.

In 2004, Brodie and two Brodie-affiliated companies, Cerentis and Integra Associates, also defaulted on a $72,280 promissory note, according to Los Angeles County court records.

Last year, Brodie tried to raise $500,000 in a private stock offering to fund an Allerca subsidiary, animal diagnostics firm GeneSentinel, of which he was chairman, president and chief executive. At the time, GeneSentinel listed assets of $3,000 and debts of $200,000. Penni Crabtree: (619) 293-1237; penni.crabtree@uniontrib.com